Online shopping has been increasing exponentially over the past decade. Online shopping revenue now represents a significant portion of the overall shopping revenue generated by merchants. As online shopping continues to increase, merchants are looking into new ways to attract consumers to shop online. One of the ways for merchants to attract consumers to shop with them is to offer incentives to the consumers. Some of the most common incentives offered by merchants include cash back, discounts on items, reward points, or loyalty rewards.
However, since there are numerous shopping avenues on the Internet, it becomes difficult for a consumer to keep track of the merchants that offer incentives for shopping at their websites. In order to entice a consumer to increase his online shopping, merchants, credit card issuers, and payment processors are increasingly finding innovative ways to attract consumers.
Some merchants offer consumer loyalty programs in which a consumer is rewarded for purchasing products and services offered by the merchant. For example, a rewards program may be offered by an airline in conjunction with a payment device issued by an issuer, e.g., a debit or credit card. The payment device issued by the issuer may be co-branded with the airlines identity, and purchases made with that payment device may be eligible for rewards such as, frequent flier miles on the associated airlines. Similarly, structured rewards programs may offer rewards for other types of purchases. For example, a gasoline rewards card issued by a bank may offer the consumer rewards related to free or discounted gasoline purchases when the gasoline rewards card is used. The monetary value of the rewards offered may be funded by the merchant or the issuer of the payment device.
The current structure of such rewards programs suffer from numerous shortcomings. First, a merchant wishing to engage in a merchant-funded rewards program may typically partner with one or more issuers of payment devices in order to establish the rewards program. The issuer may receive information about all transactions conducted with the payment device as part of normal payment processing. The issuer may then determine which purchases qualify for rewards. Given that there are currently tens of thousands of different card issuers, it is impractical for a merchant to establish a rewards program with each and every issuer. Secondly, a consumer who does not carry a payment device issued by an issuer who has partnered with the merchant is precluded from participating in the rewards program. Additionally, the issuer is tasked with processing the transactions conducted to determine which transactions qualify for rewards. In this instance, it is impractical for a merchant to establish dynamic rewards criteria, as any such changes would need to be processed by each and every issuer with whom the merchant has partnered.
In other rewards structures, rather than partnering with issuers, the merchant may partner with an acquiring bank to obtain transaction data that may qualify for merchant rewards. The alternative structure suffers from the same problems as partnering with an issuer. First, the merchant must partner with each acquiring bank that may be used to process transactions conducted with the merchant. Given the large number of acquiring banks, such a solution is not practical. Secondly, just as above, the acquiring bank determines transactions that qualify for rewards based on criteria initially specified by the merchant. It is not practical for the merchant to establish dynamic criteria for rewards, as the acquiring banks may not be willing to allow constantly changing criteria. Additionally, the problem remains that even if the acquiring bank is able to notify the merchant of all rewards eligible transactions, the merchant still does not have a way to individually identify the consumer, other than by a transaction account number. There is no mechanism for delivering any accrued rewards benefits directly to the consumer.
In other methods, the issuer or acquirer may send transaction data for all payment devices enrolled in the merchant's reward program to the merchant. The merchant then has the responsibility to determine transactions that qualify for a reward, calculate the reward, and work with the issuer to post that reward to the consumer's account. In this instance, the merchant is burdened with additional data processing that is not his core expertise and moreover, consumers are apprehensive about their sensitive financial data being available to the merchant.